Our newly-appointed Finance Minister, Tito Mboweni, delivered his maiden mid-term budget policy speech this week. Needless to say, the economy is in pretty grim shape, and it doesn’t seem as if things are going to be getting too much better in a hurry.
Mboweni’s growth forecast has almost halved that of the Treasury’s, while at the same time, he’s predicted an increase in debt that may attract unwelcome interest from ratings agencies. Slower growth, more debt.
Mboweni, to his credit, is a realistic man. He recognises the reality of the current situation, and though the immediate market reaction to his speech was overwhelmingly negative, he has maintained an air of optimism and belief that South Africa can and will be renewed.
There’s a lot to unpack here, so we’ve put together some of the key points.
State-owned vampires continue to burden the public purse as they struggle to get their act together. Until their finances are in order, the government will be granting them further bailouts to the tune of R9.1 billion.
These are allocated as such:
Furthermore, SARS will receive R1.4 billion over the next three years and the commissions of inquiry into tax administration and state capture will receive a combined R409 million.
On the dire situation over at SAA, Mboweni said:
The salary deals negotiated by Unions earlier this year will end up costing the government an extra R30.2 billion over the next three years, none of which has been budgeted for. With 1.3 million people employed by the state, at an average annual increase in salary of 11.2%, the rate of increase runs higher than inflation.
So, state departments have been ordered to find that R30.2 billion within their existing budgets.
Mboweni said that the public sector wage bill already accounts for 35% of government expenditure, and he would like to bring that down by 5%.
He further stated that if asked, he would advise President Ramaphosa to drastically trim his cabinet of ministers.
Mboweni stated that the fixing of SARS is a matter of urgency.
Despite numerous tax increases implemented in February, tax revenue collections for 2017/18 fell a good R0.8 billion short of the estimation for the 2018 budget. We’re missing the tax target by miles, and Mboweni has been forced to revise down the figures for the next three years.
Revenue brought in over the first six months of 2018/19 had grown by 10.7% compared to the same period last year, but the collection has now begun to slow thanks to the technical recession and a high number of VAT refunds. Treasury is now expecting to collect around R1.35 trillion over the next 12 months – R27.4 billion less than what Gigaba had estimated back in the February budget.
In 2017/18, for the first time since the 2008 global financial crisis, tax revenue growth did not exceed GDP growth.
On the bright side, there are no additional tax increases being proposed at this time, but we can expect to see adjustments to personal income tax brackets, levies and excise duties in line with inflation in 2019.
Unfortunately, this includes the strong likelihood of increases on the fuel levy for the next three years – meaning that the price of fuel won’t be dropping any time soon.
Earlier this year, a panel was commissioned to come up with a plan to alleviate the impact of the 1% VAT increase on low-income households.
The panel suggested that further items should be considered for zero-rating, and the government has now proposed zero-rate on white bread flour, cake flour and sanitary pads – to take effect on 1 April 2019.
That last one, in particular, has been met with nation-wide acclaim. Research has shown that the average female spends at least R600 every year on sanitary towels. The Department of Women has also developed a framework to provide free sanitary towels to young female students from low-income households.
Here are a few of the other key highlights from the 2018 mid-term budget.